Each of this week’s top stories as curated by Western Investor emphasizes the strain on supply in Canada’s commercial real estate market – particularly in Vancouver. The multi-family arena in Greater Vancouver ended off 2016 with a less than 1 per cent vacancy rate, while major sales and developments in Canada’s industrial and office markets highlighted a squeeze on available supply. Meanwhile, the looming legalization of pot is projected to put an even bigger strain on industrial and retail space, with Alberta set to become home to the biggest marijuana grow-op in the world.
Here are our picks for the most buzz-worthy commercial real estate coverage of the week.
This week, Western Investor sparked conversation on the potential effect legalized pot industry could have on the industrial and retail markets in Canada. The $800,000-sqaure-feet Aurora Sky facility under construction near Edmonton International airport may give Canada a taste of what’s in store for Canadian commercial real estate activity.
Legalization could create a $10 billion industry in Canada, according to a CIBC World Markets study. As shown in Leduc, a big winner could be the industrial and commercial real estate sector, according to a CBRE survey of what happened in Colorado, which legalized pot in 2014.
Marijuana producers have accounted for 35.8 per cent of all the industrial space leased in Denver since 2009 and now hold close to four million square feet, CBRE reported in its 2015 study. The marijuana industry is credited with driving Denver’s industrial vacancy rate down from 6 per cent in 2009 to 0.3 per cent in 2015.
The study also found that cannabis tenants paid lease rates up to three times higher than average and bought industrial buildings for twice the going price.
“Buyers paid up to four times the market value for retrofitted warehouse space to avoid delays in harvesting,” the CBRE report noted.
Retail real estate could also boom if and when marijuana is legalized in Canada. There are already hundreds of medical marijuana storefront dealers across Canada, including at least 54 in Vancouver.
U.S. studies have shown that the average sales per square foot of a marijuana retail outlet is US$974, ranking it fourth overall nationally, just behind Costco but well ahead of pharmacies and department stores.
In Metro Vancouver, the retail sector would likely see the greatest lift with marijuana legalization, according to Curtis Scott, manager of market intelligence with Colliers International, Vancouver. Scott noted that the Metro industrial market has Canada’s lowest vacancy rate, and “landlords can be choosy on which tenants they lease to.”
Demand from developers in Vancouver’s tight downtown market remains extremely strong. The $19 million sale of the 6,240-square-foot site of men’s clothing store Edward Chapman Ltd. at 833 West Pender Street reported on by Business in Vancouver highlights the feeding frenzy associated with rare opportunities to acquire downtown stock.
“There were some close bids to the winner and there was a wide range between the bids,” CBRE senior vice-president Lance Coulson told BIV.
Bidders included developers, investors who wanted to retrofit the building and lease it out and investors who wanted to renovate the store to use themselves.
Not surprisingly, the highest bid came from a developer that plans to redevelop the site and add valuable density.
CBRE’s Coulson said he believes that the high bid, compared with the site’s assessed value, stems from the fact that there is almost no commercial space listed for sale in Vancouver’s central business district.
“If you want to do a redevelopment, whether it is office or hotel – whatever you want to do – there are just very few opportunities in the downtown core,” he said.
Some past Vancouver projects developed by the Executive Group include the Portofino Tower at the northwest corner of Howe Street and Pacific Boulevard and the Executive Place Tower at the northeast corner of Howe and Helmcken streets.
The Goodman Report released its 2016 review of the multi-family market this month and although sales slowed in the second half of the year, dollar volumes were still up from the previous year. Landlord will continue to hold all the power over tenants, provided supply remains frighteningly low and rents high.
“Vacancies in most communities have declined, significant rent increases are a sure bet on turnover, immigration remains strong [and] interest rates should maintain their low levels for the foreseeable future,” the report states.
The total dollar value of apartment transactions in Vancouver totaled $894 million in 2016, up 40 per cent from the previous year. In the suburbs, the total dollar value decreased from $939 million in 2015 to $588 million in 2016. As with previous years, Burnaby continued to lead the pack outside of Vancouver, with 30 building sales. Within Vancouver, the Eastside saw the most transactions with 24 properties trading hands in 2016. In total, 174 multi-family properties were sold in the Greater Vancouver region, versus 181 in 2015. Ninety-eight of the 174 properties were located in Vancouver.
Transactions are expected to level off moving into 2017, though tight supply and rising rents will keep prices for rental stock quite high, says Mark Goodman, principal at The Goodman Report of HQ Commercial.
“2015 and 2016 were banner years in terms of transaction volume. For 2017, we anticipate a more traditional year in terms of number of sales. Goodman anticipates levels in the 110-150 range,” Goodman said.
The average per-suite value in the Metro Vancouver region increased 52 per cent over 2015, placing the average rental unit at $377,000, up from $248,000.
Another big-ticket Vancouver sale made news this week in addition to the Edward Chapman space, with Ivanhoe Cambridge parting ways with Oakridge Centre. Business in Vancouver broke the news after reporting that Pacific Centre was ranked one of the most productive malls in Canada, according to sales. Western Investor reported that Oakridge Centre was BC Assessment’s second-highest valued commercial property.
“Ivanhoé Cambridge’s divesting of this property could be a smart move as there is considerable redevelopment potential for the site. QuadReal Property Group is buying one of Canada’s top malls,” Patterson told Business in Vancouver on January 25.
Oakridge is B.C.'s 15th largest shopping centre, ranked by its 573,920 square feet, according to BIV's 2016 list of the largest shopping centres in the province.
QuadReal has selected Vancouver developer Westbank to partner on a potential Oakridge redevelopment. Some of Westbank’s best known local projects include the Woodwards redevelopment, the Fairmont Pacific Rim, Telus Garden and Vancouver House.
Oakridge has been subject to redevelopment talks for most of the past decade. Ivanhoé Cambridge most recently scaled back plans for a $1.5 billion redevelopment in January 2016 after it said that it had discovered an aquifer flowing beneath the site.
"The opportunity to acquire a flagship retail property and development project of such quality is rare," said Remco Daal, who is president of QuadReal's Canadian real estate division.